What Are Incoterms and Which Should I Use?

If you have ever seen "FOB Shanghai" or "CIF Lagos" on a supplier's quote, you have met Incoterms. These three-letter codes decide who pays for each part of the journey, who arranges insurance, and, most importantly, when the risk of loss or damage passes from seller to buyer.

Choosing the wrong Incoterm can leave you paying hidden charges or holding the risk for goods you do not control. This guide explains Incoterms in plain English and helps you choose the right one.

Key takeaways

• Incoterms 2020 is the current version. There is no "Incoterms 2026".
• Under CIF and CFR, risk passes to you when goods are loaded at origin, even though the seller pays freight.
• FOB or FCA is usually the best default for Nigerian importers.
• Nigerian duty is assessed on CIF value, whatever Incoterm you use.

What are Incoterms?

Incoterms (International Commercial Terms) are standard trade rules published by the International Chamber of Commerce (ICC). The current version is Incoterms 2020, in force since 1 January 2020. There is no "Incoterms 2026", contracts signed today should reference Incoterms 2020.

Incoterms define:

• Delivery point, where the seller's obligation ends.
• Costs, who pays for transport, loading, export and import clearance.
• Risk, when responsibility for loss or damage transfers.
• Tasks, who handles export and import customs formalities.

They do not define ownership transfer, payment terms or what happens if one party breaches the contract.

The 11 Incoterms 2020

Rules for any mode of transport

• EXW (Ex Works), buyer collects from the seller's premises and handles everything.
• FCA (Free Carrier), seller delivers goods, export-cleared, to a carrier nominated by the buyer.
• CPT (Carriage Paid To), seller pays freight to destination; risk passes at first carrier.
• CIP (Carriage and Insurance Paid To), like CPT, plus seller buys insurance (high cover level).
• DAP (Delivered at Place), seller delivers to a named destination, not unloaded, not import- cleared.
• DPU (Delivered at Place Unloaded), like DAP, but seller unloads.
• DDP (Delivered Duty Paid), seller delivers, pays import duties and clears customs.

Rules for sea and inland waterway only

• FAS (Free Alongside Ship), seller delivers goods alongside the vessel.
• FOB (Free On Board), seller loads goods on board the vessel at the origin port.
• CFR (Cost and Freight), seller pays sea freight; risk passes when loaded at origin.
• CIF (Cost, Insurance and Freight), like CFR, plus seller buys minimum insurance.

Incoterms comparison table

Key point: under CFR and CIF, the seller pays freight to Lagos, but you carry the risk from the moment goods are loaded in China. Many importers do not realise this.

Which Incoterm should Nigerian importers use?

FOB, the best default for sea freight

With FOB, your supplier handles origin trucking, export clearance and loading. You (through your forwarder) choose the shipping line, control freight costs and insurance, and get full visibility. For most importers buying containers from Asia, FOB offers the best balance of control and simplicity.

FCA, best for containers and air freight

ICC recommends FCA rather than FOB for containerised cargo, because containers are handed over at a terminal before loading. FCA also works well for air freight.

CIF / CFR, convenient but less control

Suppliers often push CIF because they can add margin to freight. You lose control of the carrier, transit time and sometimes face inflated destination charges. And remember: Nigerian import rules generally require imports to be insured locally, so seller-arranged insurance may not satisfy Form M requirements.

EXW, only if you have strong origin support

EXW puts every origin task on you, including export clearance in the supplier's country, which a foreign buyer may not legally be able to do. Use it only with an experienced forwarder at origin.

DAP and DDP, use with care

These look easy but can hide costs and compliance risk. See is DDP or DAP better for my import business.

Which Incoterm should Nigerian exporters use?

For exporters of agro-commodities, solid minerals or manufactured goods, FOB or FCA is usually safest. You finish your obligations at the Nigerian port or airport, avoid overseas import rules, and reduce your risk. Offer CIF or CFR only if you can manage freight and insurance competitively. See export documentation in Nigeria.

Common Incoterm mistakes

• Writing "FOB" without naming the port (always state "FOB Ningbo, Incoterms 2020").
• Using FOB for air freight, it is a sea-only rule.
• Assuming CIF insurance is enough cover.
• Accepting DDP without checking whether the seller can legally clear goods in Nigeria.
• Forgetting that Incoterms do not cover destination terminal charges clearly, confirm them in writing.

Frequently asked questions

What does FOB mean in shipping?

Free On Board: the seller delivers goods loaded on the vessel at the named origin port. The buyer pays freight and carries risk from then on.

Is CIF better than FOB for importers?

Usually not. FOB gives you more control over freight cost, carrier choice and insurance.

Are Incoterms 2010 still valid?

Parties can still agree to use them, but Incoterms 2020 is the current standard and should be used for new contracts.

Do Incoterms affect customs duty in Nigeria?

Duty is assessed on CIF value regardless of the Incoterm, so freight and insurance are added if you buy FOB or EXW.

Get expert advice before you sign

The right Incoterm can save you money and risk on every shipment. DE-BLINGS can review your supplier's terms and give you a clear, all-in comparison. Book a free consultation or explore our freight forwarding services.